RMD stands for required minimum distribution, which refers to the smallest amount you have take out of your retirement plan to avoid income tax penalties. In certain circumstances, you can delay your required minimum distributions, which is beneficial because you can continue to take advantage of tax-deferred growth.

Exception For Active Employees

Typically, you must start taking distributions in the year that you turn 70 1/2 years old from employer-sponsored retirement plans such as 401k plans and 403b plans. However, if you continue to work past age 70 1/2, you can delay your required distributions until the year you retire. For example, if you have a 401k plan but keep working until you are 76, you can wait until the year that you retire to start taking required minimum distributions.

No Delay For Owners

If you are an owner of the company that you work for, you cannot delay your minimum required distribution past age 70 1/2 no matter many years you work. The IRS consider you to be an owner if you have at least a 5 percent stake in the business sponsoring the retirement plan. If you have a 5 percent stake or more in a different company, you can push back your minimum required distributions by continuing to work.

Penalties for Not Takng RMDs

If you do not take an RMD when you are required to do so, the IRS charges you a 50 percent penalty. You calculate the penalty based on the amount of money you failed to withdraw. For example, if you were supposed to take an RMD of $14,000 but you took out nothing, you would owe a $7,000 penalty. However, if you took out $4,000 that year, you would owe the penalty on $10,000, which would mean a $5,000 penalty.

IRA Required Distributions

If you have a tax-deferred IRA, such as a traditional IRA, you must take required minimum distributions starting in the year you turn 70 1/2 years old regardless of your employment status. Even if you are still employer, or even self-employed, you cannot delay your minimum required distributions by continuing to work. If you have a Roth IRA, minimum distributions are never required no matter what your age or employment status.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."